A Chinese company's export price will not be recognized by the European Union (EU) if the company has not been granted market treatment. A "surrogate country" method will be used to gauge the "normal value" of Chinese exports. But in most cases, the production costs in the "surrogate country," such as Mexico or Singapore, are much higher than those in China.

Do you think the "surrogate country" method is a reasonable way to assess prices of Chinese exports?

Sergio Balibrea (SB): The EU methodology for calculating dumping for non-market economy countries, such as China, is reasonable, fair and does not disadvantage China.

Let me clarify, the Chinese export price is always taken into account. There is no "surrogate country" for calculating the export price. It is, on the contrary, the normal value; that is, the price in the domestic market and the cost of production, which cannot be calculated in non-market economy countries, and is subject to the "surrogate country" methodology.

In non-market economy countries, states interfere with the normal course of their economies, thereby distorting costs of production and domestic prices.

The European Union, as most WTO (World Trade Organization) members, consider China, while in a process of transition, has not yet achieved all the requirements to be considered a full market economy country.

The possibility of treating China as an economy in transition, in anti-dumping investigations, for up to 15 years was agreed to in the Chinese WTO accession protocol.

In such cases, it is acknowledged, unless proof of the contrary, domestic prices and costs of production of producers in non-market economy countries are unreliable, and can be calculated on the basis of a "surrogate country," whose conditions, for the product under investigation, are close to those of the non-market economy.

The European Union uses the cost of production and domestic prices in "surrogate countries" fairly, and allows parties to comment on the choice of the country and the calculations.

It is also possible for each exporter to show evidence ... they are behaving under market economy conditions and, in this case, its individual domestic price and cost of production will be taken into account when determining whether or not the company is exporting at dumped prices.

In all cases, it is possible to contest the findings before the EU's Court of Justice and, ultimately, before the WTO.

Finally, exporters to the European Union benefit from the EU's anti-dumping provisions, which are more favourable than those required by the WTO and applied by other WTO members.

First, duties are set either at the level of the dumping margin or of the injury caused to the industry, whichever is the lower. That is known as the "lesser-duty rule."

In contrast, most other users of the instrument, including China, invariably base measures on the dumping margin.

Second, anti-dumping measures are only taken when they are clearly not contrary to the interest of the European Community as a whole. That is known as the "Community interest test."

Finally, the possibility of such undertakings is always explored in cases involving developing countries.

CBW: Are the EU's market economy criteria specially targetted at Chinese companies?

Do they create extra financial and legal costs for Chinese exporters and manufacturers?

SB: Market economy criteria used by the European Union are not targetted at Chinese companies, but are applied in all dumping cases involving non-market economy countries.

The European Union offers the possibility to individual companies in non-market economies to bring their cases forward and show that, despite exporting from a non-market economy country, they are operating in a market economy environment.

This is not an obligation, and companies may decide not to make use of such possibility. If they decide to bring their cases forward, they can do this directly without a legal or financial counsellor.

CBW: To what extent will the European Union consider the positive development China is making? Is there any hope the European Union might ease the rigid market status review policy on Chinese exports in the near term?

SB: The European Union has always been open to taking into account the rapid evolution of China's economy towards a market economy.

In this respect, the European Union is ready to examine any evidence pointing to lower government interference in the economy.

The criteria the European Union would look at refers to the degree of government influence over the allocation of resources and decisions of enterprises; the absence of state-induced distortions in the operation of enterprises linked to privatization and the absence of the use of non-market trading or compensation systems; the existence and implementation of a transparent and non-discriminatory company law, which ensures adequate corporate governance; the existence and implementation of a coherent, effective and transparent set of laws, which ensure the respect of property rights and the operation of a functioning bankruptcy regime; and, finally, the existence of a genuine financial sector, which operates independently from the state, and which, in law and practice, is subject to sufficient guarantee provisions and adequate supervision.

CBW: Again, the "surrogate country" method means Chinese exporters are not able to foresee either how their prices will be assessed by the European Union or their chances of surviving anti-dumping charges. What do you suggest Chinese companies do to win such challenges?

A: In practical terms, the current approach does not put at a disadvantage those companies which operate under market economy conditions: They are treated as their counterparts in other market economies.

Only those companies which operate under significant state influence are treated differently.

Such treatment appears to be justified. Whereas some parts of the Chinese economy work in accordance with market principles, others still do not.

Companies should, therefore, seek to operate without state interference, and should not export at prices which are lower than their prices or costs in China.

CBW: Is there anything the Chinese Government can do, substantively or procedurally, to ensure Chinese exporters receive more favourable treatment from the European Union?

SB: Chinese authorities rightly consider dumping a serious topic in its trade agenda, and Chinese experts know the issues at stake. There is not much we can add.

In general terms, key elements instrumental to reducing dumping practices are: One, market economy conditions to ensure the State does not interfere in the creation of prices and costs, and that exporters integrate such costs when considering their export prices; and, second, a market open to foreign competition so exporters cannot subsidize their dumped exports with their protected domestic prices.

Traditionally, closed markets are a good basis for dumped exports, and the key in this respect is to tackle the root of problem rather than its symptoms.

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